Whitman Capital Founder Gets Two Years for Insider Trades

Hedge fund manager Doug Whitman was sentenced to two years in prison after he became the first defendant in a broad U.S. crackdown on insider trading to take the stand to convince jurors of his innocence.

NEW YORK -- California hedge fund manager
Doug Whitman was sentenced on Thursday to two years in prison
after he became the first defendant in a broad U.S. crackdown on
insider trading to take the stand to convince jurors of his
innocence.

U.S. District Judge Jed Rakoff in Manhattan imposed the
sentence, which was less than half the 4-1/4 to 5-1/4 years that
federal prosecutors wanted.

Whitman, the founder of Whitman Capital LLC in Menlo Park,
was convicted in August of securities fraud and conspiracy over
his involvement in two insider trading schemes between 2006 and
2009.

Prosecutors said one scheme resulted in more than $900,000
of illegal profit from trading the shares of Google Inc
and video-conferencing company Polycom Inc.

They said the other involved "soft-dollar" payments used to
obtain tips on and then trade in chipmaker Marvell Technology
Group Ltd.

Rakoff said he believed Whitman "repeatedly perjured
himself" on the stand and was "willfully, blatantly aware that
he was trading on inside information every step of the way."

But he also noted evidence of the defendant's good
character, including his assistance to children with learning
disabilities, in imposing punishment.

Before learning his punishment, Whitman, 55, choked up as he
read from a prepared statement in which the Atherton,
California, resident alluded to the breakup of his 20-year
marriage soon after he was charged.

"This has been the most painful and shaming experience of my
life," Whitman said. "My father taught me not to cut corners and
I tried to apply that to my life and my job ... My trial and my
conviction have served as a rude and bitter wakeup call."

Whitman was also fined $250,000 and sentenced to one year of
supervised release. He was granted bail pending an expected
appeal. Federal prosecutor Chris LaVigne said the government
will seek a forfeiture of $935,306 of illegal profit.

"Doug Whitman maintains his innocence and looks forward to
vindication on appeal," his lawyer David Anderson said in a
statement.

Whitman had sought a maximum prison term of six months.

Another of his lawyers, David Rody, told Rakoff that a long
sentence was not needed for deterrence, and that prosecuting a
"relatively smaller player" such as Whitman was enough to
convince others in the hedge fund industry that "nobody's safe."

U.S. Attorney Preet Bharara in New York has obtained well
over than 60 guilty pleas and verdicts since publicly revealing
his insider trading probe in late 2009.

MULTIPLE INSIDERS

Prosecutors said Whitman tried to make illegal profit with
the help of insiders such as Roomy Khan, a former Intel Corp
employee who passed tips on Google and Polycom, and
Karl Motey, a consultant who passed tips about Marvell.

Also testifying against Whitman was Wesley Wang, a former
Whitman Capital employee who later worked at Steven Cohen's SAC
Capital Advisors LP.

Khan, Motey and Wang have pleaded guilty to various crimes
linked to insider trading. They have been cooperating with
investigators with the hope of receiving lighter sentences.

As in many other recent insider trading prosecutions, the
government's evidence against Whitman included telephone
conversations secretly recorded by the FBI.

Khan was also a central figure in the government's
prosecution of Galleon Group LLC hedge fund founder Raj
Rajaratnam, a former billionaire who is now serving an 11-year
prison sentence for insider trading.

Wang, meanwhile, has given the government information on as
many as 20 people who may have been involved in insider trading,
prosecutors have said. Among those he named was Dipak Patel, a
former SAC portfolio manager.

Rakoff often imposes lesser sentences than the sentencing
guidelines recommend and ignored the 10- to 12-month recommended
lengthening of Whitman's sentence for perjury.

The judge said that provision could "chill" defendants from
defending themselves under oath and be "an impediment to
innocent people taking the stand and clearing their name."

In October, Rakoff sentenced former Goldman Sachs Group Inc
director Rajat Gupta to two years in prison for tipping
Rajaratnam - well below the eight to 10 years guideline range
that prosecutors wanted. Gupta is appealing his conviction.

The case is U.S. v. Whitman, U.S. District Court, Southern
District of New York, No. 12-cr-00125.